Friday, 15 August 2014

Press statement by SMSL/PSHK on 15th August 2014

PSHK/SMSL is organizing a public rally to present memorandum to all the Pahang State Assemblymen on the 17th August at the MPK Padang 1 starting 8.00 am. This is to provide the people a chance to participate in a gathering where they can get to know the people whom we elect to safeguard our well beings.

It is also an opportunity for people to voice out their concerns about the operation of Lynas Advanced Materials Plant (LAMP) which has evidently been causing anxieties among the residents. The people are concerned that the issue has been so politicized that it could never again be rationally discussed in the State Assembly. It has practically strained the bond between the people and the government! This is something that will not bode well for the good of the state!

Lynas brought in more than RM2 billion to invest in Malaysia. While its economic contribution to our economy is still debatable, the fact that it has been in operation without the social contract for almost 2 years and had generated a lot of solid wastes including that of radioactive WLP waste is undeniable. Despite the fact the Government has granted it a 2 year Temporary License, people’s immediate concern is whether this plant’s operations had been monitored adequately and the radioactive wastes generated managed safely.

In its latest quarterly report Lynas has proposed to the Department of Environment to allow them to build a road in Malaysia using the recycled radioactive WLP waste. It did not declare where it will build it. We hold the view that Lynas should have built the pilot plant which it didn’t and carried out all tests and assessments regarding the recycling of its wastes before it set up LAMP here!

CERRIE (Committee Examining Radiation Risks of Internal Emitters) Report came to the conclusion that there is no safe level of radiation while the OEKO Report stated that the practice and recycling of radioactive wastes by dilution is not practised anywhere internationally and even if it is diluted to below 1 BQ/gm, it will still be way above the BRC (Beyond Radiological Concern) level!

Should this be allowed it will turn our beloved country into Lynas’ experimentation station for recycled radioactive wastes! So is the proposal to recycle the NUF wastes into another synthetic product!

We would like to urge all our state assemblymen to take note of this matter and debate with sense and sensibility in the Dewan to ensure that all the Pahang State residents are fully protected. We are not advocating NIMB (Not In My Backyard) policy but to remind the elected people’s representative that they have a sworn duty to protect the State and the people living in Pahang.

We hereby urge all Kuantan, Balok and all residents living nearby to come out to attend the rally and serve as witnesses to an event that will refocus on treating issues that affect people’s lives as matters that deserved to be discussed rationally and resolved in the State Assembly in the best interests and benefits of the citizens!

We welcome all residents irrespective of political affiliations or inclinations to attend this rally. Your active participation is to safeguard the long term interest of our future generations.

We look forward to your presence on the 17th August 2014 at the MPK Padang 1 starting 8 am.

〜ＳＴＯＰ ＬＹＮＡＳ 〜 Lynas' TOL is due for renewal on 2rd Sept 2014. The LMC (Lynas' operations Monitoring Committee) set up under PSC will be holding its last meeting on 14th Aug. to prepare a report for the Mosti Minister. AELB will then hold a meeting to decide on d renewal.

We are going to KL- LMC, AELB & DOE to hand in our memos on the 14 Aug Morning, to remind them NOT TO RENEW Lynas' TOL ! All Kuantan residents are welcome to participate in this expedition. Free transport will be provided. For further details pls contact our hotline : 012 982 3302(SMSL). Thank you.

Monday, 4 August 2014

Lynas Corporation has just released its quarterly reports ending 30th June 2014.

Based on the reports ending 30th June 2014, Lynas is financially in a critical state. SMSL hereby urge the government and the regulatory authority AELB NOT to extend or renew its TOL!

In its Cash Flow report, the quarter ended with a deficit of $A 23.775 millions while its previous quarter has a cash reserve of $A 23.359 millions! It raised $A 39.971 millions from a rights issue exercise and institutional placement of shares last May. It now has a cash balance of $A 38.144 millions, while the next quarter has a forecast outflow of $A 58.172 millions! This does not include the next principal repayment due under the Sojitz Facility of US$ 35.0 millions on 30th September 2014!

Though the quarter saw a production of 1,882 tonnes of REO, Lynas only sold 1,630 tonnes and grossed in A$26.495 millions which is equivalent to a basket price of A$16.254/kg. It is much lower than basket price of US$20.35/kg during the quarter on a China domestic basis. What this means is LAMP is operating on a loss accumulating basis. The market price for REO is continuing to experience the down trend and this will further exacerbate Lynas’ losses through a full operation ramp up as announced !

It is now clear that Lynas’ financial health is in ‘ICU’! Should it failed to get their creditor Sojitz/LOGMAC to agree to defer their repayments of A$ 215 millions in 6 monthly intervals till 31 March 2016, it will begin to default on their repayments starting September 30th this year and this could lead to dire and serious implications for the community here ! With the meagre sum of US$13.05 millions received as security deposits, would it be sufficient to dispose off thousands of tonnes of solid radioactive wastes left behind by LAMP safely?

The Government of Malaysia and the regulating authority AELB should exercise the Principle of Caution and reject Lynas’ application for the Full Operating Stage License (renewal of TOL)!

In its activities report ending 30th June 2014, Lynas revealed that it has submitted all documents required for the application for a Full Operating Stage License (FOSL) for LAMP to the AELB. It has also made an e-application as well and submitted a letter of intent to that effect. Lynas claimed that it has complied with all regulatory requirements and ALL conditions of the TOL since it was issued by the AELB in September 2012. (Source: Quarterly report ending 30th June 2014)

The residents of Kuantan and Balok hereby request AELB to confirm

1. that Lynas has identified a location for its PDF as required under the terms of the TOL.

2. that Lynas has successfully conducted tests on the recycling of solid wastes into Synthetic Mineral Products as claimed in their report and they are prepared to fulfill their undertaking of shipping them abroad to their potential buyers;

3. that AELB has certified the ROAD BASE material developed from water leach purification (WLP) as a Non –radioactive material and Lynas is seeking DOE’s approval for construction of a demonstration and assessment road using this material;

4. that the company has gained approval from a CUSTOMER (Is AELB aware of this?) and is preparing to make the first commercial trial export of neutralization underflow product (NUF).

5. that AELB has checked , agreed and approved all these alternatives to finding a PDF.

6. that the written undertaking by Lynas to ship all recycled products overseas will be adhered to as directed by the Malaysia Cabinet.

The residents are gravely concerned that both Lynas and the regulatory authority have not been fulfilling their pledge to inform and engage the local residents and communities on these matters. It is part of the IAEA recommendations that both Lynas and AELB should adhere to as a precondition to the issuance of TOL.

Lynas claimed that WLP wastes will be recycled as ROAD BASE material and the AELB has certified it as non-radioactive, we would like both Lynas and AELB to provide us with a sample so that independent experts can have a say over this. Meanwhile we urge the DOE NOT to approve the proposal from Lynas for the construction of a demonstration and assessment road using this material! Lynas should have done this before it built its plant here. Why should our land and environment be the experimental laboratory for Lynas’ radioactive wastes?

So is the claim by Lynas on the commercialization of NUF wastes. We demand that all information regarding the CUSTOMER and the trials that had been carried out be made available to the public so that a fair and independent opinion can be sought from the experts to appease the fears and concern of the people!

Contrary to what Lynas has claimed in their report regarding the fulfillment of ALL conditions under the TOL, it has failed to carry out what it promised in its written undertaking. AELB should under no reasonable circumstances allow the application for the Full Operating Stage License (FOSL) to be approved!

We as stakeholders have been bypassed and ignored when LAMP was built. We promise that we will not let this matter rest if proper observation of rules and regulations both by Lynas and the regulating authorities are not adhered to. We shall pursue through whatever means necessary to ensure that our environment is not sacrificed on the altar of foreign profits and the incompetence of our government officials!

Friday, 25 July 2014

Lynas Advance materials Plant’s (LAMP) Temporary Operating License (TOL) will expire by 3rd September 2014. It would have to cease operation if it is not renewed by then!

SMSL hereby urge the AELB, the regulating authority to consider the following facts before deciding on their application to renew the TOL:

1. Lynas has failed to identify the location for the PDF within 10 months of its operations as required by the AELB

2. It has failed to intensify its engagement with the local communities and provide them with adequate information relating to their operations as recommended by IAEA.

3.It has not shown nor provided any information regarding their proposals to recycle all their solid wastes.

4.Does Lynas have the financial capability in recycling the wastes? How do they propose to do it when they can’t even pay the security deposit of USD 10 million each year according to the original agreement!

5.They had to resort to issuing rights issues and institutional placement of loan to raise enough funds to last through the last quarter. Their share price had plunged to a record low of AUD 0.115 level just before the rights issue!

6.Lynas has a total borrowing of USD 440 million from two of their creditors and the next repayment of USD 35 million is due this 15th September. It is facing serious financial difficulties. With the continued depressed prices of REE in the international market, Lynas is experiencing losses through every kg of REE they processed. They had to resort to stockpiling the REE they produced in order not to further depress the REE prices thus lessening their losses. The restructuring of loans will determine if it will last another quarter!!

7. The people of Kuantan, Balok and the communities living nearby are gravely concerned with the data collected by the regulating authorities showing a slow and steady increase of background radiation since Lynas started its operations. This is consistent with findings by Professor Yoshihiko Wada, PhD from Doshisha University, Kyoto.

8. The fact that Lynas is imminently facing the possibility of a foreclosure brings into focus on the disposal of the wastes! AELB should seriously consider these facts before they decide to renew Lynas’ TOL. I

In order to convey these messages to the authorities concerned, SMSL is organizing a rally for the people of Kuantan and greater Kuantan at the MPK Padang 1 on the 17th August (Sunday). We are also sending a delegation comprising of local residents to hand in memorandums to the AELB and Lynas Monitoring Committee on the 14th August. We welcome all residents of Kuantan and greater Kuantan to participate in the rally as well as the trip to hand in the Memos.

The Stop Lynas Campaign has entered its fourth year. By September 2nd this year, Lynas’ rare earth plant (LAMP) would have been in operation for two years!

As stated in our first flyer, if our government agency AELB were to enforce the rules strictly, LAMP would not be able to get its TOL renewed and it has to stop operating starting 3rd September!

We do not wish to speculate if AELB would play its role fairly and effectively. If past experiences were any guide, we do not cherish any hope that LAMP would be ordered to stop its operations come 3rd September!

However, what ultimately happened to the Asian Rare Earth (ARE) in Bukit Merah gives us hope that the end for LAMP seems to be near.

Here are the facts:

1. As of 31/12/13, Lynas has 5 times more payables than receivables. (AUD 38.2m vs AUD 7.6 m)

2. Lynas chosed to stockpile its lanthanum instead of selling at a loss. It costed Lynas USD 15/kg to produce but received below USD 6/kg in return on selling! To prop up the Average Selling Price, Lynas announced in January it will not accept new orders for lanthanum at prices below USD 15/kg.

3. In the half year interim report, Lynas revealed that it had produced 994 tons but sold only 627 tons of rare earths oxides (REO). Similarly, inventory for finished goods also climbed from AUD 0.53 to AUD 4.42 million (m).

5. With negative free cash flow, Lynas will have no money to meet its financial obligations let alone maintain its plant. Lynas has 2 major creditors. The Sojitz loan facility has a principal repayment schedule as shown in Table 3.

30 September 2014 USD 35 million 31 March 2015 USD 45 million 30 September 2015 USD 45 million 31 March 2016 USD 90 million

Total: USD 215 million

Table 3: Sojitz loan facility repayment schedule

In addition, the principal of Mt. Kellet convertible bonds amounting to USD 225m is payable in full on 25 July 2016.

In short, Lynas will need to fork out a total of USD 440m by 2016. Interestingly, the Mt. Kellet convertible bonds come with conditions that restrict Lynas from issuing new shares until Lynas can achieve at least 70% nameplate capacity of Phase 1 over 6 consecutive months [7]. Therefore, unless Mt. Kellet relents, debt financing or debt restructuring are Lynas' only options.

6. Lynas is significantly leveraged with gearing (borrowings/equity) of 0.87, which means, Lynas has almost as much borrowings as it has its own funds. While it is still possible to borrow, it is unlikely Lynas will get favorable terms in view of its poor profitability and prospect. To make the matter worse, the Sojitz loan facility comes with a condition that 50% of any new debt raised must be used for partial repayment. Therefore, even if Lynas is able to swap new debt with old, it will probably service the new debt with even higher interest than that of the old.

7. In conclusion, Lynas will fail. It is not a matter of if, but a matter of when. Will the existing creditors throw in the towel? Or will they continue to throw good money after bad? The next few quarters will be crucial for Lynas' survival.

8. Lynas' net asset per share is AUD 0.28. At the closing price of AUD 0.135 on 15/7/14, it is still trading at a price to book ratio of 0.48. It has shed more than 95% of its peak value. (By Soo Jin Hou – Stop Lynas Coalition)

How much longer can Lynas hold up before it goes down?

The people of Kuantan and greater Kuantan will have to eventually face the spectre that the toxic wastes left behind by LAMP would be the unwanted legacy that will plague the communities for centuries to come even if Lynas did not get its TOL renewed!

Saturday, 28 June 2014

Press statement on 28th June 2014 by SMSL on impending renewal of Lynas’ operating license by AELB.

SMSL strongly urge the Government and the Ministry of Science, Technology and Innovation (MOSTI) NOT to extend or renew Lynas’ Temporary Operating License (TOL) which is due to expire on the 2nd September 2014!

Lynas has failed to disclose to the public the identification of the site for the Permanent Deposit Facility (PDF) for its radioactive Water Leach Purification (WLP) waste as required under the terms of its TOL!

The regulatory authority AELB, in granting the TOL to Lynas stated that Lynas needs to fulfill the above condition 10 months after it commenced operations.

On the eve of the dateline, it claimed to have submitted the proposal to the relevant ministry, but the Minister concerned refused to reveal the site proposed. The then Ketua Pengarah of AELB Dato’ Raja Abdul Aziz said on record that Lynas only submitted a ‘conceptual’ plan of the PDF and not the site! We would like to remind both Lynas and the government that the ‘wastes’ ARE REAL while the PDF plan submitted by Lynas remains a concept!

Lynas claimed that they are able to recycle all solid wastes into industrial products thus not requiring a PDF!

Till this day it has NOT revealed how they propose to do that; neither has it produced any research papers for the public to evaluate the validity of its claims!

To recycle the THOUSANDS of tons of its solid wastes annually, Lynas needs to set up a recycling plant the size of which will be the equivalent of if not bigger than its present processing facility!

This will involve a large input of funds to get it set up and make it operational! Given Lynas’ present state of financial status, it will not be able to walk its talk! This will render Lynas’ claim a bluff and the people of Balok, Kuantan and greater Kuantan will eventually be left holding the toxic legacy, courtesy of Lynas!

Lynas is required to deposit with the government a total sum of 50 millions USD in 5 years as security. It had asked and obtained an agreement from the MOSTI to stretch the payment to 7 years with a mere 6.05 millions being collected in the first year of its operations. This raised a grave concern on whether Lynas will be able to honour its pledge to the government to remove the waste including shipping them overseas if it failed to utilize it for recycling!

The radioactive waste left behind by Asian Rare Earth is still undergoing a cleanup operation costing no less than USD $100 millions. Should there be a foreclosure for LAMP, with the meager sum of USD $ 6.05 million collected from Lynas, the people of this country will be burdened with the costs of cleaning up the toxic waste left behind by Lynas!

Lynas had to resort to rights issue of its shares to its shareholders to pay for the second quarter’s operations. In the words of a financial analyst “It’s almost a stay of execution,” UBS AG analyst Jo Battershill said.The government should take cognizance of this fact and refuse to extend or renew Lynas operating license.

We reiterate here that Lynas had not fulfilled the various terms under the Temporary Operating License. The license was issued on the ground that it will enable the AELB to collect operational data on the wastes produced to validate Lynas’claims. We had on our part done some data gathering and compilations. We demand that AELB release all the data collected since day one of Lynas’ operations failing which it will only prove that the AELB is incapable of playing its regulatory role! Under the circumstances the government should not extend or renew Lynas’ operating license!

We had sent appeal letters to the AELB and the Mosti Minister in May 2014 urging them not to extend or renew Lynas’ operating license! In the letters we submit that we have found new evidences that will enable them to deny Lynas the renewal of the license. They had acknowledged receipt of our letters through AR letter acknowledgement cards. Till this date they had yet to reply!

We wish to remind the government and the MOSTI that they are elected by the people to safeguard the interest of the people and the nation. By not considering the facts laid before them as tabled above, they shall be held accountable to the future generations of this country and we shall do whatever that is necessary to ensure that our children and great-great grand children shall not be burdened with the tasks of a clean up like the Bukit Merah case.

We repeat: Until and unless all conditions are complied with under the TOL, the government should NOT extend or renew Lynas’ operating license!"

Tuesday, 24 June 2014

Press Statement by SMSL on the incident of Himpunan Hijau’s event on 22nd June 2014

SMSL strongly condemn the extra judicial way of handling the supporters of HH after their arrest. Witnesses testified that Ho Kim Huat was brutally manhandled resulting in head and bodily injuries and had to be sent to the General Hospital Kuantan for emergency treatment and remain warded for observations! This is by any standards of operations by the police should not have occurred. We hereby call upon the Pahang state Chief Police officer to initiate investigations into this incident to preserve the integrity of the force and make public his findings!

The demonstration yesterday was a peaceful assembly of Kuantan residents and supporters from all over the country. They had gathered in front of the police barricade and were waiting for the negotiation between the parties involved in this dispute to conclude. At the end of the negotiation , a commotion started resulting in three supporters being arrested, one of whom had earlier breached the barricade. He was floored and kicked and beaten with the wooden baton on his back and head resulting in bruises sustained on his lower abdomen and the head. The detainees claimed that the police used steel knuckles to punch them on various parts of the body while they were held in custody in the police van. The detainee who sustained bodily bruises and head concussions was carried into the Lynas plant compound and received emergency medical aids before he was rushed to the hospital for medical attention!

The entire happening was caught on tape.

This is a serious charge of violation of the basic human rights of the victims! We urge the victims and the organizer of yesterday’s event to launch an official complaint with Suhakam. Such violence on the part of the police in handling a civil protest should never be condone! It was a peaceful civil protest and there was no criminal offence being committed. The police are tasked to upkeep law and order and any offence committed should be dealt with accordingly to the legal provisions. There is no room for justification for the way the detainees who complained about being manhandled by the police.

Saturday, 10 May 2014

SMSL/PSHK Press statement on the 10th May 2014

SMSL hereby call upon the Malaysian regulatory authority AELB and the Minister of MOSTI NOT to consider the application by Lynas for the Permanent Operating license in view of the likelihood that it is forced to close because of financial reason.

The TOL (Temporary Operating License) for two years is due to expire on the 2nd September 2014. Under the terms of the issuance, as recommended by the IAEA report, Lynas is required to submit the plan for the PDF (Permanent Deposit Facility) for its radioactive waste WLP before TOL is granted.

Lynas not only failed to submit the plan before the issuance, AELB made a provision for them to comply within 10 months after it commenced operating. On the eve of the dateline, Lynas submitted a ‘conceptual’ plan of the PDF while the Deputy Minister of MOSTI, Dato Abu Bakar Mohd Diah replied in the Parliament that Lynas did identify the site and the plan for the PDF but he declined to reveal the site! (http://www.thenutgraph.com/lynas-an-unsolved-conundrum/)

This showed clearly that Lynas failed to comply with the requirements stated in the TOL.

The IAEA report also recommended that Lynas deposit USD50 million with the AELB in installments of USD10 million each year for 5 years. This is grossly inadequate as LAMP is 10 times the size of ARE which is currently undergoing a clean-up operation which cost the former ARE owner USD100 million! In the event of a foreclosure, the residents and the people of Malaysia will be left holding the toxic ‘unwanted baby’!

The risks of a foreclosure can be real as the following paragraphs taken from various reports in the public domain show:

In its first quarterly report 2014, (note 1) Lynas has a closing cash balance of AUD$23.4m as at 31 March 2014. Their next quarter will require AUD$48.172 m to operate as tabled in its quarterly cash flow report (note 2)

Lynas seeks to raise AUD$30 million through rights issue and another AUD$10 million through institutional placement to boost its working capital.

On this, the foreign analysts commented:

“It’s almost a stay of execution,” UBS AG analyst Jo Battershill said by phone. “If there’s any price weakness, a slowdown in the Chinese economy, or a slowdown in demand for rare earths, than how long does it buy them? It’s hard to know.” (Note 3)

"The market's just looked at it and gone, 'well, this is kind of what people thought and the operational side of things continues to disappoint," UBS Metals and mining analyst Jonathan Battershill said.

"Despite the company saying they think they can have the production level up at 11,000 tonnes by June ... we are not really seeing the numbers that provide confidence. Even under the assumption that it will be 11,000, they still need to raise money." (Note 4)

We are gravely concerned about the possible foreclosure of Lynas. The toxic legacy that will be left behind will burden all future generations for centuries to come!

This is definitely not an unfounded or baseless concern as our research showed the cash flow problem and the future rare earth market ahead for Lynas will be much more challenging than before! (See report attached).

We hereby also call upon the Lynas Monitoring Committee set up under the recommendation of Parliamentary Select Committee to equally exercise care and prudence and factor in the financial hardship Lynas is currently experiencing before they make their final recommendations to the Minister concerned. If they failed to exercise them in their deliberations they are answerable to all the future generations in Malaysia!

Wednesday, 23 April 2014

SMSL COURT CASE

On 22/04/2014(Tuesday) 9am, SMSL attended a hearing at the Federal Court in Putrajaya for the following cases:-

1. Taufeq Teng & 6 Others: To apply for a motion of leave in the Federal court to review the dismissal of leave by the Appellate court on a point of law;2. Ismail Haji Bakar: To move a motion of leave in the Federal Court to review the dismissal of leave by the Appellate Court on the recusal of Judge Datuk Seri Mariana Yahya3. Tan Bun Teet: same as above.

The first case is an application for leave in the Federal Court on a point of law on the dismissal of leave by both the High Court and the Appellate Court. The leave application both at Kuantan High Court and the Appellate Court were unsuccessful. It was an application for leave to file a Judicial Review (JR) against the issuance of TOL by the Government on 3rd September 2013.

The second and third cases are similarly applications for leave in the Federal Court on a point of law which has yet to be interpreted. Earlier in the Kuantan High Court, SMSL has applied for leave to recuse Judge Datuk Seri Mariana Yahya. It was granted and the case was heard by the judge herself. She dismissed the case on the ground that she is capable of upholding justice though she is personally involved in the application. Therefore, SMSL proceeded to file for an appeal against Judge Mariana’s decision in the Appellate Court. It was subsequently dismissed.

All 3 cases were heard by a panel of 5 judges at the Putrajaya’s Palace of Justice at around 11am and the verdict was read out after lunch at 1.15pm where the judges were of the view that there was nothing that had not been interpreted in terms of the laws involved. They dismissed all the cases with cost of RM25,000.00 each to the AGC and Lynas.

The attempt by the 7 residents of Kuantan to ask for leave to file a JR on the issuance of TOL has finally reached the end of the road.

On the other hand the JR cases of both Haji Ismail and Tan Bun Teet will be heard at the Kuantan High on the 8th May 2014.

As this shall be the finale of the legal saga against the award of TOL, all are urged to be there to witness the hearing!

Wednesday, 16 April 2014

Nick Curtis is losing interest in rare-metals miner Lynas Corp, although it is not of his own volition. Curtis reported to the ASX on Thursday that he handed 10 million shares to Credit Suisse to settle a $4.319 million loan facility set up in April last year.

''The facility is not a margin loan and therefore there are no margin calls,'' Curtis reported at the time.

So presumably it is not to blame for his sale of 2.85 million Lynas shares just before Christmas. Since December, his stake in the company has shrunk from 16 million shares to about 3 million as of this week.

CBD suspects other funds may have changed hands to settle the facility given the shares were worth a tad under $2 million when Credit Suisse took hold of them.

It is not the only potential call on the family purse strings.

There is also the matter of the legal bills being run up by his son, ''celebrity investment banker'' Oliver Curtis - hubby to publicity queen Roxy Jacenko - who is fighting insider trading charges in the Supreme Court.

Just as well Nick's Queen Street, Woollahra home is still on the market.

He also has 18.5 million options over Lynas shares, compliments of the years he spent as its CEO.

The stock's plunge since its half-year results announcement a few weeks back finally bottomed after Lynas reported that production at its controversial Malaysian processing facility remains on track.

''I wish to assure shareholders that while LAMP has been slower to ramp up than we would have liked, recent production is beginning to demonstrate sustainable momentum,'' said Curtis, who also had to contend with a speeding ticket issued by the ASX on Wednesday when the stock bottomed at 17.5¢. Charitable plan

Having rolled the board of Australian Infrastructure Fund last year, Wilson Asset Management chairman Geoff Wilson is seeking a higher purpose for the corporate shell he now controls.

The AIF board says it has received a proposal from his charitable entity, the Wilson Foundation to ''transform the company into a listed investment company with a charitable purpose''.

The Wilson Foundation plan is to invest $1 million in the company to buy out minority shareholders and then raise new capital under its new mission - if the proposal is approved by current investors including Wilson Asset Management, which has a 18.6 per cent stake.

The company is expected to generate a normal market return for its shareholders; the charitable donations will come from fees forgone by the fund managers it invests with, according to Wilson. Murdoch moves

CBD could not help but notice that the return of heir apparent Lachlan Murdoch to the family firm was not worth a single tweet from bachelor dad Rupert Murdoch, as of Thursday afternoon.

Luckily his papers picked up the slack. News Corp rag The Daily Telegraph chose to splash with a pic of Rupert and the elevation of his sons, Lachlan and James, at the ''family-controlled business'' above an ad with the tag line ''family proof''. Here's hoping guys.

Meanwhile, questions remain unanswered about the split at Ten between Lachlan and James Packer. Does the fact that Murdoch broke his deal to ''act in concert'' with Packer on their combined 17.6 per cent stake in Ten signal a divergence of interests as he rejoins Ten's alleged predator News Corp?

That news popped up just 10 minutes before Murdoch announced he was stepping down as Ten chairman.

And what would Ten's new executive chairman, Hamish McLennan, do if a bid does lob from his previous employer News Corp?

After all, he was appointed on behalf of News as chairman of realestate.com.au. Speaking of which, given he is still looking for a CEO and CFO at realestate.com.au, we are glad that he doesn't have too much work on his plate at Ten.

The group has burnt through the cash in an attempt to get the LAMP operationally cash flow neutral. The quarterly report for the period ending December 2013 showed cash-in-hand remaining of $74.7 million with negative operating cashflow of $17.19 million partly a result of sales coming to only around one-fifth of operating production and administration costs for the quarter.

In the six-month period to December 2013 Lynas spent $67.1 million with cash receipts from sales at just $10.2 million.

In April 2011 shares traded at $2.55 and today trade for less than 20 cents, which leaves the question has the group reached the bottom?

Lynas' announcements to the market last week included proclamations that at current prices for the rare-earths sold it will be operationally cash flow neutral at a monthly rare-earth sales rate of 750 tonnes.

In March 575 tonnes were produced (not sold) and the company says come June 2014 it will be producing the equivalent of 11,000 tonnes per annum (tpa) as part of its Phase I project. That's equivalent to 917 tonnes per month and well above the operationally cash flow neutral level if sold at expected prices. Even if the plant is operationally cash flow positive, Lynas has its debt pile to service and other required investments and expenses to meet.

This means the 11,000 tonnes per year figure is a minimum and given that only 575 tonnes were produced in March that's going to require a rapid, problem free, production ramp-up over the next quarter to end of June 2014.

Lynas also received approval in November for the Phase II part of its LAMP project which if successful would allow it to bring an additional 11,000 tpa of capacity online, making a total of 22,000 tpa at which it estimates a 14$-15$ cash cost per kilo produced. This versus a reported selling price of $22.63 per kilo in the quarter to March 2014.

Lynasâ€™ Achillesâ€™ Heel though is the massive decline in prices of two of its key rare-earth resources over the last two years. Lanthanum Oxide and Cerium Oxide have more than halved in market price at exactly the wrong time, leaving the business unable to produce some of its key rare earth resources at a profit for now.

Lynas believes its time will come, as rare-earth production requires significant capital and operational expenditure to safely manage residual wastes. This means as demand rises new supply is likely to come from existing producers raising capacity, rather than newcomers entering a capital intensive and evidently tricky market.

It estimates that demand for its rare-earth materials used for renewable energy, electronics, lighting and oil refining sectors could grow at 5-6% per annum. Almost all other production comes from Chinese controlled producers and their varying levels of production have tended to dictate market prices received per kilogram of rare earths produced.

Itâ€™s also notable that while the company has been talking up its prospects over the last week, its own chairman and major shareholder, Nick Curtis, has been offloading his own shareholding on a substantial basis over the past year, including dumping 10 million shares to Credit Suisse in March 2014 alone.

Foolish takeaway

If the group's stars align and it meets production guidance alongside a recovery in the rare-earths price it may be in a position to manage its debt and shares trading around the 20 cent level today will look a screaming bargain soon enough.

However, the prospects of a price rise in its key commodities looks thin andÂ bargain-hunting investors will be placing their faith in a company and management team that has been long-on-promise and short-on-delivery so far. Given the debt and cost blowouts this is a very high-risk investment, however, if the company is able to execute a turnaround in union with an eventual rare earth price rise, now would be the time to snare a bargain.

Thursday, 27 March 2014

No respite in sight as Lynas bleeds - Part 2 (By Soo Jin Hou)

Lynas has released its half year interim financial report for the period ending 31/12/13 on 11/3/14. On the cover page, Lynas warned investors of an imminent cash crunch and that it will need to raise fresh funds via additional equity, additional debt or some refinancing or restructure of the Group's debt facilities over the next 12 months. Subsequently, investors punished its shares through a 11% decline in price over the next 2 days, extending the 11% loss of the previous 2 days.

This paper is written to document various information that may not be immediately apparent to the lay investor which suggests that its predicament may be worse than it seems.

Average Selling Price (ASP)

The average selling price is USD 22.70/kg and USD 21.48/kg for quarters ending 30/9/13 and 31/12/13 respectively. What is certain now is that Lynas can only command prices closer to the China domestic price instead of the higher FOB (Freight on Board) China price (see Table 1). This may be a huge disappointment to many Lynas investors who continue to use FOB China price to justify a comfortable profit margin. The lower pricing is most likely due to its products being rare earths composites instead of the 99% pure rare earth elements from which the basket prices are derived from.

However, as low as the ASP may seem, it might be even lower if not because Lynas chose to stockpile its lanthanum instead of selling at a loss. As of 6/3/14, prices of lanthanum and cerium oxides remain below USD 6/kg [1], well below Lynas' optimal production cost of USD 15/kg [2]. To prop up the ASP, Lynas announced in January it will not accept new orders for lanthanum at prices below USD 15/kg [3]. It is unclear what is the actual ASP if the unsold lanthanum is included, but it will definitely be lower. After all, Lynas has admitted that the slight drop in ASP in the December quarter is due to a higher proportion of cerium than the prior quarter.

In the half year interim report, Lynas revealed that it had produced 994 tons but sold only 627 tons of rare earths oxides (REO). Similarly, inventory for finished goods also climbed from AUD 0.53 to AUD 4.42 million (m). These evidences are consistent with window dressing, although Lynas attributes the sales gap to timing.

Production Cost

Prices of lanthanum and cerium, which constitute 72% of Lynas' products, are much lower than Lynas' optimal production cost of $14-$15/kg if the plant is to run at the maximum capacity of 22,000 tons per annum (tpa) [2]. However, Lynas will only attempt to achieve half that by June quarter for fear of causing a collapse in rare earths price if it floods the market with excess supply. At half capacity, Lynas has claimed to be able to achieve production cost in the high teens [4].

In the comments section of the first part of this article [2], a Lynas investor has said that "Lynas has estimated (that) phase 1 capacity (11,000 tpa) cost of production will be US$19/kg". In view of the absence of any direct estimate from Lynas in any of its official documents, it is regrettable that the author has no choice but to adopt the data given by the investor.

Unfortunately, even if Lynas manages to eke out a slim profit, its free cash flow is negative after accounting for depreciation and amortization. After subtracting the annualized amount of AUD 24.5m (half year FY2014 is AUD 12.2m), free cash flow is negative AUD 3.5m. Free cash flow is a measure of a company's excess cash after spending to maintain its asset base. Having a negative free cash flow, even when the ideal conditions above are met, means that Lynas will not even be able to maintain its "state-of-the-art" plant. If Lynas scrimp on safety, more industrial mishaps may occur in the future.

The conditions assumed are ideal because it has not taken into account the following:

c) potential cost from meeting its obligation to build a permanent disposal facility or sending the waste overseas

d) interest payment for the Sojitz loan facility is partly tied to LIBOR rate and will likely increase in a rising interest rate environment

e) higher production cost due to partial withdrawal of subsidy for petrol (since September '13) and electricity (since January '14) as well as the implementation of the Fuel Cost Past Through mechanism this year

f) allocation for R&D expense from 1% of revenue as recommended by the Parliamentary Select Committee [6]

g) execution risk in bringing down production and labor cash burn rate of AUD 51/kg in the December quarter

h) execution risk in meeting production target from 2,964 tpa in the December quarter to 11,000 tpa by June quarter.

Financial Obligations

With negative free cash flow, Lynas will have no money to maintain its plant let alone meet its financial obligations. Lynas has 2 major creditors. The Sojitz loan facility has a principal repayment schedule as shown in Table 3.

30 September 2014 USD 35 million 31 March 2015 USD 45 million 30 September 2015 USD 45 million 31 March 2016 USD 90 million

Total: USD 215 million

Table 3: Sojitz loan facility repayment schedule

In addition, the principal of Mt Kellet convertible bonds amounting to USD 225m is payable in full on 25 July 2016. In short, Lynas will need to fork out a total of USD 440m by 2016. Without a doubt, Lynas will default on its borrowings unless it is able to raise fresh funds.

Lynas is significantly leveraged with gearing (borrowings/equity) of 0.87, which means, Lynas has almost as much borrowings as it has its own funds. While it is still possible to borrow, it is unlikely Lynas will get favorable terms in view of its poor profitability and prospect. To make the matter worse, the Sojitz loan facility comes with a condition that 50% of any new debt raised must be used for partial repayment [7]. Therefore, even if Lynas is able to swap new debt with old, it will probably service the new debt with even higher interest than that of the old.

To add to Lynas' woes, as of 31/12/13, it has 5 times more trade payables than it has receivables (AUD 38.2m vs AUD 7.6m). Therefore, Lynas may burn cash even faster in the subsequent quarter.

Lynas' net asset per share is AUD 0.28. At the closing price of AUD 0.225 on 27/3/14, it is still trading at a price to book ratio of 0.8. That is quite a lofty valuation even though it has already shed more than 90% of its peak value. The author expects more room for the price to fall should Lynas fail to turnaround its business.

In conclusion, Lynas will fail. It is not a matter of if, but a matter of when. Will the existing creditors throw in the towel? Or will they continue to throw good money after bad? The next few quarters will be crucial for Lynas' survival, and the concerned people of Malaysia wait with bated breath.

[4] This information is hearsay from Lynas' investors who tuned in to the Investors Call held on 19/4/13. Unfortunately, the audio recording of that call does not include the Q&A section which is purportedly where the production cost for Phase 1 is revealed. These information are obtained from Topstocks forum under the thread "Lynas Quarter Report Investor relations Call" started on the same date.